Is Hasbro Stock Undervalued?

Hasbro, Inc. (NASDAQ:HAS) is an iconic toy company and component of the S&P 500. It’s responsible for all your favorite toys and board games, including Transformers, My Little Pony, Nerf, Play-Doh, Baby Alive, Power Rangers, Monopoly, and Transformers.

It even owns Peppa Pig and Death Row Records, but despite how much we all love these brands, Hasbro’s stock has been struggling in 2020. This is largely because of retailers being hesitant to restock shelves.

Traditional toys and board games aren’t experiencing the same Renaissance as digital entertainment, so is Hasbro stock undervalued?

Toys are far from the only profits the company pulls in – it also has content and licensing deals across a variety of media to generate revenue. It’s also making plenty of new toys based on Disney franchises like Star Wars and Disney Princesses.

Still, it has a lot of obstacles to overcome if it wants to win this holiday season. It’s the last chance for the company to create a huge win before government stimulus programs expire and people’s purse strings tighten.

Here we look under the hood to explain what need to know about Hasbro as an investment. Let’s get started.

Hasbro Is Not Just a Toy Manufacturer

Hasbro is a toy manufacturer with an array of subsidiaries that house all its famous brands, including Saban Brands Entertainment Group (Power Rangers), Entertainment One (DreamWorks, Amblin, Death Row Records), Playskool, Tonka, and Wizards of the Coast.

It also owns several iconic brands like Milton Bradley, Parker Brothers, and Tiger Electronics, which have been largely brought under the Hasbro umbrella.

This means classic card and board games like Monopoly, Scrabble, Risk, Trivial Pursuit, Battleship, Cranium, Dungeons & Dragons, and Magic: The Gathering are all Hasbro products.

Instead of directly creating video games based on its toys, Hasbro lives off licensing deals.

Video games are largely made by companies like THQ and Electronic Arts, while licensing deals to create toys based off other IP can also be made.

This creates four main revenue streams for Hasbro:

1.     Franchise Brands

2.     Partner Brands

3.     Emerging Brands

4.     Hasbro Gaming

Partnerships are massively important, and Hasbro’s Disney partnership is a big part of that. Disney’s Frozen, Marvel’s Avengers and Spider-Man, and Star Wars are all massively popular both domestically and internationally.

This gives the company a massive war chest to play with during the slumping economy. Still, the company is far below its pre-coronavirus trading levels, leaving investors wondering if it’s a good deal.

Is Hasbro Stock Undervalued?

Hasbro has a market cap of nearly $12 billion entering the 2020 holiday season. It dropped to a low of $41.33 after the market crash and is still trading for under $100 per share. This is down sharply from its 52-week high of $123.05 in the summer of 2019.

In fact, share prices hovered around $100 since 2017, and there are a few indicators the company could recover. Its biggest problem it faces is the reluctance of retailers to stock its products, leaving the company to rely heavily on digital sales.

Revenues dipped by nearly a third entering the back half of the year, and it posted losses of $33 million for the quarter. This is because of the consumer shift in spending priorities during the Covid-19 pandemic.

As lockdown orders were issued across the world, panic shoppers rushed for groceries and cleaning supplies, along with home furnishing to turn homes into offices and classrooms. If anything, people needed more space and less physical toys as they quarantined and spent more time at home.

Still, the company has heavy-hitting name brands that will surely help it pull out. It has over 150 film and television projects in production, and these essentially act as commercials for the toys.

Expect to see more Peppa Pig, My Little Pony, and Transformers content soon, and there were two G.I. Joe movies scheduled for 2020 release before the virus hit. This content will surely fuel sales – it’s just a matter of when.

Is Hasbro Share Price Going To Fall?

Just because Hasbro holds a lot of IP doesn’t mean it’s guaranteed to win. Ecommerce only accounts for 30 percent of the company’s revenue, and it’s still reliant on stores to sell its product.

Even in ecommerce, you’re more likely to buy from a store like Walmart or Amazon over directly through Hasbro. And the company is saddled with massive production costs with all its sets shutting down during the pandemic to keep everyone safe. There’s still a chance that consumer spending is forever changed.

Hasbro doesn’t make necessities – it makes optional purchases. Although none of us has ever done it, it’s entirely possible to live your life without ever playing Monopoly.

These optional purchases are the most at-risk when finances are tight in a rough economy, and Hasbro isn’t the only player in the game struggling for smaller profit shares.

Hasbro Vs Competitors: Can It Win?

Hasbro faces competition on several fronts. Its toy business has direct competition in the form of Mattel Inc (NASDAQ:MAT), Leapfrog, and Vtech.

Its content machine is in direct competition with partners like The Walt Disney Company (DIS), along with Sony Entertainment (SNE), Warner Media, and more.

Everyone in Hollywood and the toy business is scrambling for consumer interest and dollars, and there’s no guarantee Hasbro will win.

Margins are tight, and Hasbro is hemorrhaging cash. The next few years could drive the company into debt that forces a buyout. There are no guarantees in nonessential products.

Is Hasbro Stock Undervalued? The Bottom Line

Hasbro is a storied toy manufacturer that owns some of the most iconic brands of your childhood. Its toys, card, and board games continue to be popular, but consumer and retailer spending is down in the aftermath of the coronavirus.

Productions shut down, and the company is discounted after reporting big losses in the first half of 2020. But it still has digital outreach, solid partnerships, and some of the most popular franchises on the planet.

Many analysts believe Hasbro could be discounted in 2020 and is poised for a major comeback over the next two years.

The only thing holding it back is its reliance on retailers and streaming services to get its content and products out there. If the company sticks to its guns and squeezes a profit out of the shelf space it has in all major retailers, it can be the comeback story of the 2020s.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.